Why demand for student loans is high despite the pandemic
Although there has been a demonstrable shift from traditional classroom instruction to online education, the push towards online degree programs has not translated into lower education costs.
The pandemic has affected and radically changed the life around us. More importantly, it has affected and changed the way education is pursued, as well as changes in student loan trends. Despite the COVID-19 crisis, India’s education sector has continued to record an increase in the number of students pursuing higher education.
Increase in education loans during the covid wave: According to the All India Higher Education Survey, student enrollment in higher education increased by Rs 11 lakhs, a jump of about 3% between 2019 and 2020. This surge, combined with the rise in skyrocketing inflation in the education sector, has led to a steady growth in demand for education loans in the country.
At a time when most schools and colleges across the country and the world have been forced to close physical classes, demand for student loans has hit an all-time high, especially during the first wave of the pandemic. The bulk of disbursements occurred during the pandemic period with more than 3 lakh new borrowers taking out loans between March and October 2020, showing data from CRIF High Mark, an RBI-approved credit bureau in India. Additionally, there was loan disbursement of Rs 11,000 crore by education companies in the year ending September 2020, the credit bureau revealed.
Here are some of the trends that have led to the increase in student loans despite the pandemic;
The rising cost of education: Rising education costs have made it difficult for parents to invest in their children’s education, especially at a time when many parents have faced pay cuts in their jobs. The pandemic has added additional pressure on parent scholarships, creating additional demand for funding options to manage education-related expenses. It is estimated that 1 in 5 students struggled to cover their fees, even after being at university for a year.
An MBA from a leading private business school will cost around Rs 20+ lakhs today, while it would have been around Rs 10-12 lakhs five years ago. Similarly, the cost of education was around $60,000 five years ago, and has now risen to around $75,000+.
Although there has been a demonstrable shift from traditional classroom instruction to online education, the push towards online degree programs has not translated into lower education costs. Since universities have had to make investments in infrastructure to enable this provision, the cost has been diverted to students, leading to an increased need for student loans.
The cost of studying abroad remains high: Despite the pandemic, there is an increase in the number of students wishing to shape their careers by studying abroad. Overseas spending for such high courses is also expected to increase in the coming years. Spending on overseas courses is expected to reach $80 billion by 2024, up from $28 billion currently, according to RedSeer statistics. In addition, college lending institutions are already noticing an increase in applications from outgoing students.
Increased demand for refresher or continuing education courses: Over the past two years, there has been a steady increase in the number of people enrolled in executive education programs. The pandemic has created an urgent need for skilled and high-tech manpower. With new jobs arriving and finding new ways to drive business growth, the only way to be relevant to emerging job profiles is through education.
Aspirants now want to upgrade – either by enrolling in an executive education program or enrolling in short-term refresher courses. About 30-40% of refresher course attendance is driven by “buy now, pay later” funding models.
The influx of aspirants pursuing multiple courses: With most students continuing their studies virtually from home during the pandemic, they have the option of taking multiple courses. The proliferation of EdTech companies across the country has allowed aspirants to take multiple educational paths to further their education and improve their skills.
Continuous demand: With in-demand higher education courses far from affordable and education remaining a top concern for most Indian households, education-related borrowing will continue to rise in the country.
by Avinash Kumar, Founder, Credenc